Marc Schillaci - Oxatis Founder and CEO

A Fund Raising Saga: What do you do with the funds once they're raised?

The saga about our second fund raising campaign is going to end today with a recurring question: "What are you going to do with the 4M€?"

Even if some of our colleagues teasingly suggest that we should buy out all the pizzerias in our surrounding area, (and others who have far more adventurous ideas that I don't dare mention here), we're going to use the 4M € differently.

1.    First and foremost to continue the industrialization of our model on 3 levels

• Style and Substance: Everyone concentrates on style, the site itself, the catalog and things like the "add to cart" button. They concentrate much less on substance.
  What's behind that style? How is my online business connected to the business world (banks, ERP, etc.)? How is it open to other technology? How is it open to other third parties (graphic artists, SEO experts, developers)? How do you optimize sales and average cart values? How do you get the client to come back? These are the real questions.
• Reliability: Of course, all e-commerce players claim to be reliable! But the reliability of an e-commerce platform is like the reliability of an airline carrier.  It's when problems pop up that you can be happy you chose the right company. Oxatis is exceptionally reliable (http://startandgo.oxatis.co.uk/OxMonitoring.asp), a reliability that has been measured for almost 10 years. And like a quality airline, that reliability is acquired through investment, material and  software architecture and especially through the quality of their staff and the procedures  put in place. When you have 100 or 200 merchants, you might think you can tell yourself that you can address the issue later when you have thousands of e-tailers. But this questions needs to be addressed every day, for every merchant.
• Price: The big question...What can you do so the price satisfies your client? There only two ways: 
  - Explain to them why they can't use a shared platform and why they need to pay a lot for a tailor-made solution. It's Oxatis' job to make our solution more efficient, open and customizable so that this argument can be used less and less (it's already hard to use it today, and we'll do everything we can so that it's impossible to use 95% of the time)
  - Assure them that they don't need to pay a lot and with a little work on their part they can achieve what their looking for. It can work. It's craftsmanship and what we did at Oxatis nearly 10 years ago in 2001/2002 when there were only 2 of us and we made up for our lack of industrialization with the 100 hours of work we put in every week.  But all of that has to come to an end. As soon as the team starts to grow, you can't explain to your colleagues that you have industrialized your business model by reverting back to the 19th century where everyone works 70 hours a week!  So, the more time passes, the more you need to do to really industrialize your business model to make your services affordable for the client, valuable for your employees and profitable for the company.  This is achieved through the industrialization and optimization of all business processes: R&D,  customer acquisition, sales, training, technical support, services, customer follow-up, etc…

2.    Become a European leader
Big project! In terms of reach, e-commerce is nothing like Facebook or Twitter. You can't just create a product and wait for people to come and use it.

Even if word of mouth is still big, there's no viral effect when adopting an e-commerce solution because for every company, heading toward e-commerce is a major, complex and thought out step. No entrepreneur worthy of  the name would try e-commerce out  "just to see how it goes". They choose a solution and count on it to see them through. 

And there is an enormous eco-system in e-commerce. Payment systems, marketing systems, logistics systems...but also business management and accounting systems as well, and I'm not just talking about 10 or 15 banks and a few price engines, I'm talking about thousands of resellers, business accounts software manufacturers, etc. that need to be educated, connected, trained…

So, with the ambition to become a European leader, Oxatis can't simply translate its tool into 3 or 4 languages and offer it "as is". We need to establish ourselves in each market,  work on each markets month after month, get them to accept us, etc. Simply put, "act global, think local".

And vice versa, there isn't a Franco-French market. American, British or German solutions are coming or will come to France. And paying for R&D with 500 or 1,000 clients when a competitor is doing so with 5,000 or 10,000 …that can bring you to your knees before you've even had the time to learn how to walk. Of course, it's always possible to "take" a few hundred clients by putting caring treatment up against industrial quality measures, but that won't last very long…

3.    Grow stronger and buy other companies
Here's an even more recurring question… So, I'm going to try to answer it in an open manner.
If we raise a lot of  money while we are profitable in our main market - and we don't plan on blowing millions of Euros in TV advertising (which was the standard in the Internet bubble era), then it's probably because we intend to make a few acquisitions.
I'm not going to pretend the contrary. But… to buy what? Basically, two things can be bought: technology or clients.
•    Technology refers to breaking technologies in our principal business activities or complementary services that may impact our thousands of clients.
•    Clients means a significant amount of customer accounts – a minimum of several thousand real clients (you know, the ones that actually pay, no free subscriptions?), that will allow you to grow even faster.
Here again, it's about saving a year or two of development time. To put it clearly,  a company that has several thousand new clients a year has little interest in acquiring a company that only has a few hundred...unless you're trying to launch an activity in a new country. And still…

4.    Evangelize, make things easier, get involved on a local level
Oxatis plays a key role in "education", evangelism of e-commerce practices and now has the means to fully embrace and take on that role. 
The Instants e-Commerce program and Education/E-Commerce program are more than ever a top priority on the agenda.
I said it when I announced our investment funds: 200,000 sites for 4.6 million SMEs in the UK, 65,000 sites for 2 million SMEs in France, the few companies in Spain, Italy, and other European countries that are under-equipped...it's high time to provide these companies with modern, reliable, standardized and affordable tools to help them towards modernization and a transformation of their distribution channels.
 
So, our teams aren't going to sit around twiddling their thumbs and wait for these companies to find us. We're going to get out there and find them, wherever they are, to educate and support them.

An ambitious and motivating program that these investment funds are going to allow us to accomplish.

Thanks again to everyone: To some...readers, future e-tailers and even competitors, for the interest you've shown in Oxatis. To others...clients, partners, investors and Oxatis team members for the complete trust that you've always demonstrated.

And that brings this saga to a close!

•    If I haven't answered a question you have, feel free to leave it as a comment below. I'll try to answer it to the best of my ability.

•    If you're feeling inspired by the journey ahead and want to join our team, feel free to let me know.

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A Fund Raising Saga: Why should you raise funds?

After answering What does fund raising mean? and When can you raise funds? at the beginning of the week, I'm going to try to answer a question that surprised me a bit, even though it's very well-justified: Why should you raise funds?  

It's so ingrained in my being as an obvious fact that I never felt the need to say it out loud: Raising money is an entrepreneur's  duty nowadays.

I'd even go further to say that it's a triple duty:

•    A duty to your shareholders,

•    A social duty towards your employees,

•    A duty to your country, who supported and helped you create your business.

1. A duty to shareholders who provide you with capital, which is the first liability of the company. This liability is actually what the company owes its shareholders. On the other side, there are the company's assets: R&D, the clientele, market position, the brand and the team, of course.
   
   The head honcho of a modern business (far gone are the days when the family business was created by a patriarch and passed on from generation to generation) often convinces one or several  associates to take part in the adventure as well and, sometimes, collect funds from their entourage. He's indebted to these people. He can't afford to sit there and say "I made my business grow, I pay myself a fat salary, we don't share the profits because we use them to grow even more, the company isn't worth much because it relies 100% on me, etc."  This wouldn't be an honest attitude to have with your shareholders.
   
   A modern entrepreneur's profession is to create value, not simply for himself by securing lifetime income, but for his shareholders as well.
   
   Raising money means developing your business, making sure that at a given moment, others are going to give you money  that will have two purposes: allow your company to grow faster and put a price on the company.


2. A duty towards your employees. First of all, this is mandatory if you want to attract the best talent out there. The talented don't join businesses that stagnate! They team up with companies that have a story to write.  And you need to convince these talents, recruit them and offer them opportunities to express themselves. You need to give them R&D resources to develop the best possible tools, resources to design the optimal material architecture, the ability to recruit other talented colleagues. When you have a really good idea, you need to carry it out as good and as fast as possible or else someone else, somewhere else will do just that! 


3. A duty to your country. I can already see some startled faces and eyes wide open.
   France (us being a French company) is a country that imposes enormous social and fiscal expenses on businesses, but it's also a country where anyone trying to launch a business receives a lot of help from the government.
   
   Therefore, it's wise, and even essential, to take advantage of any possible and imaginable aid out there to create your company. But after a few years, it's pay-back time. The numerous advantages that are offered need to balance out the cost of a job that hasn't been created, or the cost of paying someone's unemployment. 
   
   If you listen to the famous historian and economist Jacques Marseille, every unemployed person costs 50K€/year, or the triple annual income of an average Frenchman.
   
   So let's divide that by 2 to tone those numbers down. That means that a company that received 300,000 Euros in government funding has to create 12 jobs and keep them going. If they only hired 4 or 5 people, then the funds, which are provided by the general public (yep, we're talking about taxes and not money provided by investors or tax breaks for the company) aren't being used properly and the company is clearly abusing the system. And these rules would apply in any country.
   
   At Oxatis, we received a certain amount of government aid. For example, we are in an  underprivileged area of Marseille and a third of the employees we hired had to come from this area...and they were right to impose that requirement (I'm certainly grateful).
   
   We created 40 jobs and we didn't receive 40x25,000, or 1M€, from the government. Therefore, every job that we created saved the government money, and we could do that because we raised money to finance our growth. The help we got to jump start the business at the beginning was very welcome, but that kind of aid should not be taken advantage of!

These are the reasons why you should raise funds. Yep...it's a triple duty. Provided, and it goes without saying, that you use them wisely!

Which brings me to Monday's theme and the last chapter in this saga: What do you do with the funds once you have them?

A Fund Raising Saga: When can you raise funds?

Yesterday, I answered several questions grouped together under the theme "What does fund raising mean?".

Another group of questions that was brought to my attention concerns the theme "When can you raise funds?".

Of course, I don't claim to have the perfect methodology. I'm simply sharing my experience and am not offering an exact science. Every case is unique even if they all share certain  common factors.

Not all companies needs to raise funds. It would never cross a  garage owner's mind to get listed on the stock exchange.  Likewise, a car manufacturer wouldn't hesitate to go and search out necessary resources.  

The analysis is the same for an Internet merchant. A good web agency specializing in e-commerce doesn't have the same needs or the same market as a technology based e-commerce platform.

If you want to raise funds for your business, the first thing you need to ask yourself is if the possibility exists, because you can be a brilliant entrepreneur but not be running a company that is able to raise funds. 

At the risk of sounding a bit mundane - the specialists will forgive me, when a 10M€  fund invests 1M€ in 10 different companies, 5 will fail, 3 are worth about the same 5 years later, one is going to double in value and the last one's value will soar to one x10 or x20.

Let's do the math: 5x0+3x1+1x2+1x15 = 20. 10 invested, 20 back five years later.
That's not bad, but it's no Eldorado!

So, if you've got a good quality company but whose value can't grow 10  fold in 5 years, then you're probably going to have a hard time finding professional investors. If the potential of each of the 10 companies selected wasn't to grow ten-fold, none of them would have been able to raise the funds.

To this vital point, I'd add the quality of the team, which is even more important than the quality of the product or service. Two or three associates is good, but being surrounded by a few particularly brilliant managers is essential. Otherwise, you can keep dreaming.

Quickly surrounding yourself with people that are better than you in certain aspects also shows your ability to recruit the best and get them to stay. Investors know that this is fundamental for growth and are glad to see that you can do it really fast.

So, let's assume that you're in an exploding market, your service is excellent and that your team rocks… you still need to take a look at the competition to see if they've left you a piece of the pie!

Why? Because when a market is exploding, it gives all the followers ideas, and they start thinking "why not us?".

And that's where the  "first come, first served" policy comes into play.

It's always better to be first, because most times there isn't enough room for everyone.
In any case, not many investors will throw their money at the followers if they've taken a look at the leader's project and didn't go ahead with it.

Raising funds, and doing it again, before the others do is also a way of making life much more difficult for your competitors, no matter what sector the business is in.

So, when should you raise funds? As soon as possible while evaluating IF it's possible!

Which brings me to tomorrow's theme: Why should you raise funds?

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A Fund Raising Saga, Got Questions?

First of all, many thanks to all of you for your congratulations after the announcement about the investment funds we raised that I shared with you yesterday.

In addition to the congratulations and shared joy, this fund raising decision has raised several questions that I am going to try and answer here. Sharing some feedback about my experience and the conclusions I've drawn is the least I can do.

I don't have enough time to answer each question one by one. So, I'm going to regroup them by theme and spread my answers out over a few days. The saga of this fund raising campaign, in sum.

Today, I'm going to answer "Raising funds, what does that mean?"
Tomorrow, Thursday, I'll address "When can you raise funds?"
Friday, I'll tackle "Why should you to raise funds?" and Monday "What to do with them?"

If none of these themes answers your questions, feel free to ask them as comments below. I'll do my best to answer.

So, today "Fund raising, what does that mean?"

In 2008, we succeeded in securing 2M€ in our first fund raising campaign, which took 9 months to complete. This indicated a growth market and a strong product/service. The hardest part was convincing potential investors or our ability to perform.

Today, undertaking a second fund raising campaign and completing it within 9 weeks, when the company is much more developed than in the first campaign, is not only an indication of a growth market or a better product/service, but proof that we were perfectly capable of carrying out the first phase of our mission. Surrounded by exceptional colleagues, we industrialized the business and the fruit of that labor is visible and palpable.

This means that the company is great shape, because as everyone knows...those who have, get (and those who have not, get not)! 

Of the 2M€ raised in 2008, one is still in the bank and the other produced exceptional results. This is what allowed us to go as fast as we did.

It's also an indication that the market is balancing out. 

In 1997, we were one of the only ones who invented the concept of an e-commerce platform in the USA. 10 years later in 2007-2008, the balance rested on the multitude of strong competitors that were pretty similar to one another.

But the clients and investors made their choices. And that naturally led to a concentration (did you say selection?).

That brings me to the conclusion that future funds raised by e-commerce platforms will be very sizable or won't happen at all.

They'll definitely involve companies that, like us, have a story, have customers and, especially, have results. When the market enters into this stage of maturity, it "rewards" performance and not ideas.  This is bad news for newcomers, but excellent news for those leading the pack …

That's what fund raising means for Oxatis in particular and for a business sector in general.

Tomorrow, I'll follow up with "When can you raise funds?"

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Brick-and-mortar shops mandatory for pure players? (final episode, season 1)

Season 1 of the series "Luxury, E-Commerce and Bricks" ends with a (temporary?) victory for the luxury goods industry (see previous episodes here and here).

There's nothing new under the sun. The European Commission, who seemed to want to overhaul the text concerning selective distribution regulations, finally decided to give up on the revamp and settled for small changes, keeping in line with the previous regulations!

The basic principle, which was making waves, remains unchanged concerning online sales: Manufacturers can require that their distributors have one or several bricks and mortar stores. 

"It's a balanced text that protects consumer interests and allows us to develop our industry on the Internet," says Elisabeth Ponsolle des Portes, Delegate General of the Comité Colbert, an influential French economic committee.

Yes, it would be hard to imagine the members of the Comité Colbert overjoyed to see their products sold on PriceMinister or eBay! 

Because at the Comité Colbert, everything is luxury, calm and voluptuousness?

And as any medal comes with its share of concessions, merchant sites did get some "guarantees" relating to markets closed to traditional and online price-discounters, among other things. With these guarantees, "once authorized, distributors must be free to sell on their own websites as well as in shops or other physical outlets". So, is all the pressure off concerning prices and quantities sold once the precious right to sell the brand/product is granted?

Against all expectations, eBay said that the decision "reflects the realities of the 21st century by placing online and offline sales on an equal footing".

Now things are a bit clearer, but not necessarily on a global scale for certain more widely distributed brands and products. Unless this hit pilot series is picked up for a second season called "Breaking down the brick wall"?

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Bubble? What Bubble?

10 years ago, in March 2000, it seems the dot-com bubble burst.

I say "it seems" because, even though I saw the effects, at the time we were in the middle of raising investment funds. And two months after the bubble popped in May 2000, we raised 3 million dollars! ...In the USA, the epicenter of the dot-com bubble burst.

There's no denying there was a bubble. But for but those who weren't drinking champagne, the pill went down a little smoother than for the others.

What lessons should be learned from this period?

• Learn to recognize true entrepreneurs: A few "whipped cream makers" made a lot of money at the expense of those that bought their "virtual companies" during this period (I won't name any names...I'd make too many enemies. But try to find the company names of the serial entrepreneurs on the Web). The real entrepreneurs, those that built themselves up little by little, are the ones that have my respect.
  Again, try to find the companies created before 2000 that still exist today. Those are the ones that survived the bubble. There aren't that many. Amazon.com and eBay are a couple names that made it through the turmoil.

• Never enter a market where a high roller with deep pockets is ignoring all fundamentals and acting erratically: I don't play poker. But I'm sure that those of you who do wouldn't sit down at a table where another player with a huge stack of chips was acting crazy and playing erratically.
  But there are tons of cases where that happens. For example, look for first round fund raising in 2009 greater than 7-8M$ in the UK!
  Of course, there are exceptions. But in general, to justify such investment, these entrepreneurs create delusional expectations from their investors, who are logically less inclined to accept even the tiniest deviation (sic) from the business plan.
  In the United States, when we raised 3M$ (which was a huge sum of money 10 years ago!), one of our competitors, BigStep.com, raised 80M$ in the first round, if I remember correctly.
  It's one of the biggest first fund raising rounds in history. They went from 0 to 400 employees in less than a year, their business was based on a cost free model … they got their wings and were the first to fly straight into the wall… as fast at 80M$ lets you go in a few months!
  Needless to say, those of us that were next to the wall seriously felt the tremor! So, be wary of euphoric markets.

So what do you need to do today to tackle the Web?

At the risk of repeating myself: Be persistent, never say die! This doesn't mean that you shouldn't adapt, but that you should believe in your idea and develop it with determination, following your road map.

The advantage of doing things with very little resources is that it's practically impossible to make enormous mistakes with grave consequences. The advantage of doing things with large resources is that you can rapidly achieve great things.

It's best is to go through both of these stages (not at the same time, of course). This gives your business time to grow, but slowly enough at the start to learn and stay in the domain of acceptable errors. Moving on to stage two, you will be able to grow fast enough to deliver with larger resources that allow you to save time and create value.

To finish up, a question I ask myself often: Can we save ourselves from these crises?

I'm not sure. The Web is still too young to have gone through numerous crises. But real estate specialists will tell you that good times and times of crisis alternate to the benefit and delight of the strongest and most organized. 

It will probably be the same on the Web. The companies that figured out the best ways to position themselves, raise money, manage their growth and development towards perfection will probably be the ones who prop up the more careless and less efficient.

Good luck to all of you who have a good idea and believe in it! Take control and persevere!

Marc

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And what does E-Commerce look like in Japan?

We tend to forget that we are a reflection of our habits and culture. What makes sense to us may seem absurd to other cultures. And vice-versa.

That's why it's often beneficial, rewarding and inspiring to take a look at what others are doing, especially those in far off places!

The JDN [French online journal] published a case study examining e-commerce in Japan by selecting the top ten merchant sites with the most visits, according to Comscore, and analyzing their results with the help of data provided by the Bureau Van Dijk - Electronic Publishing Services. 

The findings are a far cry from European norms in terms of concept, user-friendliness, design and use. Let's take a closer look at the number one e-merchant site in Japan:

• Rakuten is an online shopping center that sells everything from clothes to food to high tech items. It also provides travel and reservation services and houses an auction platform. The Rakuten site has a very large audience with 33.9 million unique visitors per month...in a country with a population of 127 million.  
  In Figures:
  Unique Visitors (September 2009): 33.9 million
  Rakuten Group 2008 Sales: 1.88 billion Euros
  Rakuten Group 2008 Profits: - 413 million Euros
  Employees: 4,874

And here's what the site looks like....

In its original version:

And in its English version:

Completely different!

By extension, this logic can be applied pretty much everywhere, including communications between European countries.

After all, you wouldn't talk to a German and a Spaniard the same way. You might even agree that you wouldn't talk to someone from London the same way you'd talk to someone from Edinburgh. That's something that deserves a bit of extra reflection.

In the meantime, itte kimasu. I'm off to visit e-commerce in Japan. Right from my chair, in front of my screen. If your curiosity has been peaked and you're anxious to see more, you can find the case study (in French) here.

7 Random Things About Me

After many requests, and many hot potatoes thrown my way, I surrender! As usual, I felt  that 7 things was a lot, but in the end, I had a hard time narrowing things down, so...here I go. 

1) I love Diet Coke! Ok, I don't smoke, I hardly drink at all (except for a good bottle of wine). No coffee either. I had to do at least one stupid thing every day, so, I chose Diet Coke. Everyone tells me over and over again that it's crap..., nice and cold please, with lots of ice and no lemon, it's the best!

2) I don't like to sleep! I don't have anything against sleeping in, but I need to exert a whole lot of energy the day before to be able to get in more than 5 hours. So, seeing that I like math (see number 3), I feel better about it when I think that sleeping  3 hours less a day gives you 1100 hours of "other things to do" a year. That way, I can still  devote some time to my family and to water skiing (see number 7)!

3) I like mental arithmetic. As soon as I hear numbers on the radio, I start dividing or multiplying to try to understand what they mean. The last time I did this kind of math in my head, I heard that we spent 27 billion Euros to reduce unemployment by 500,000 people. It's great that unemployment is down by 500,000, but when it costs 54,000 Euros a person  (3 times the yearly income of an average Frenchman), there's a (big) glitch somewhere and it's not coming from the unemployed (who are certainly not earning that kind of money)!

4) I tend to over simplify things. In a previous company, my nickname was "It's Easy". Since then, I've tried, with difficulty, to make some progress by  paying much closer attention to the complexity of what I ask others to do.

5) I love to cook. I hate eating "garbage". So, when I'm lucky enough to be at home, I cook. Given my Sicilian roots, I've been known to make a mean risotto or pasta dish, but I can easily branch out  to French food.

 6) I like theoretical physics. I would have loved to have lived between 1900 and 1920 when relativity, quantum physics, causality, and tons of other fascinating concepts were born.  I would have liked to have been there to see Niels Bohr argue with Albert Einstein about the reality of quantum physics.  Einstein, infuriated,  hurled "God does not play dice!" at Niels Bohr, who replied "Who are you to tell God what to do!" Incredible!
I still read lots of books and journals in this domain. Pretty often, I have a hard time understanding certain concepts, and an even harder time explaining them to others. When I do understand, I settle for sharing my state of euphoria with myself :-).

7) I have an unhealthily addiction to water skiing. It's a drug. As soon as I see a large body of water, I start to ask myself how I can cross it at high speed! Where can I find a boat? Where can I find a driver? Is a bloody barge going to pass through and ruin my run? When I'm lucky enough to have the body of water, the boat, and the driver, I'll make all kinds of excuses to spend the day doing nothing but skiing.

Why do I like it so much? I could post a whole note explaining why, but, if I had to choose just one thing? Because, to be a good skier, some people say that you can only have one active neuron: the ski neuron. And, like happiness, when only one neuron is in complete concentration mode (in my case, ski mode), you forget all of life's troubles and you live 100% in the moment.  So, I often find myself thinking that it's sad a run only lasts 16.25 seconds :-)...


Have a good one :-)

Marc